India’s GDP touching a six-year-low of 5 per cent in June wasn’t an unexpected summer phenomenon. The economy was already blowing hot and cold much before the general elections in May, when government spending and policy slipped into a do-nothing phase, which in turn quickened the pace of the slowdown.

Acknowledging as much, Finance Minister Nirmala Sitharaman said there were disparate, but visible signs of the downturn in auto, finance and real estate sectors two or three quarters ahead of elections. While the government was responding to the crisis with commitment, Sitharaman said, the Budget announcements made in July and the basket of measures announced last month will lead to economic recovery sooner or later.

“As the auto sector challenges were coming to the fore, NBFC crisis happened ... the retrieval of NPAs was happening, with banks, particularly PSBs, cleaning up their books... and then came elections, when for nearly 3-4 months, a lot of things were discussed, but you had to wait for the government to get elected and then start spending,” Sitharaman said.

She said the government wasn’t ‘sitting idle’, but keeping ears close to the ground and responding with short-term and long-term relief measures to heal the economy’s sore spots notably, NBFCs and auto sector. As part of the fiscal push, the government is hitting the road with its mighty Rs 100 lakh crore infrastructure investment bazooka to fire up the growth engines.
“Consumption needs a boost, whether public or private. As for public spending, we will front-load the proposed `100 lakh crore investments. As soon as the task force identifies projects, I’ll release funds. That’s how quickly I’ll move,” she said, adding, “I’m sure you’ll see clear signals of recovery in consumption sooner or later.”

But even as experts are bursting blood vessels on whether it’s a cyclical or structural slowdown, Sitharaman was nonchalant. She also remained tight-lipped about the gravity of the slowdown. Is the economy in the ICU? She gave no answers. “I’m not good at analogies, but I’ll certainly say, every challenge that has been voiced is taken seriously... The economy may have its challenges, but is still growing at 5 per cent... The challenges are there, I’m not denying it. The challenges are there and we’re seized of it. And for the challenges, we are also coming with the responses. But we are still growing at 5 (per cent) and above. And one-quarter low of 5 per cent, as we all know, for a growing economy, rises and dips are part of growth,” she explained.

With FPIs pulling out of the Indian market despite the rollback of enhanced surcharge and firms like Reliance deleveraging, it appears to be a reflection of the state of the economy. But Sitharaman dismissed such overt concerns. “I think business decisions are taken on many considerations. The economy, I repeat, may have its challenges, but is still growing at 5 per cent,” she said.

While admitting that slowdown affects tax collections, she reasoned the government will get into the driver’s seat “to do the balancing act”. But she declined to disclose if she would don a fiscal straitjacket like her predecessor Arun Jaitley or break open the coffers to resurrect growth. The recent transfer of Rs 1.76 lakh crore from RBI should come in handy as part of a fiscal stimulus, but Sitharaman kept all cards close to her chest. “As finance minister, I have to find the elbow room (for fiscal expansion if need be),” she said.

Is the slowdown cyclical or structural?
I’ll not get into it, but I’m addressing it. The RBI or anyone can give their views, but I’m taking it forward to improve the situation. I’ll certainly say that every challenge that has been voiced is taken seriously. Even in my August 23 press conference, I’ve shown a clear indication of every segment where we have to respond with short-term and long-term measures. That’s the approach even now. Structural measures have been waiting for a long time. Systemic reforms are not something that I can postpone and therefore those reforms will continue.

In 2014 we clearly said and in 2019 we’ve repeated that reforms is a continuous process and we invest in reforms both in terms of money and Parliamentary measures. Prime Minister Narendra Modi himself is closely in the loop deliberating the ways through which we can respond. For each sector, two of us (respective ministries concerned) brief the PM and we are all in direct engagement with sectors and also with bureaucracy. The government is seized of the challenges, but committed to respond in a positive manner.

What’s ailing the economy, and for how long has the problem been existing?
I keep repeating that I’m addressing challenges sector-wise. Sectors for different reasons started feeling the challenges, let us say two quarters or three quarters (before elections). The often-talked-about sector is auto, which of course is for understandable reasons because it employs a lot of people, has export potential, and has a components- manufacturing sector reliant on it. Obviously, it contributes a lot to the GDP. In the meanwhile, we also had the NBFC and IL&FS crisis, running parallely. Then came the question of NPAs and their retrievals. The government successfully reduced NPAs from about Rs 10 lakh crore to `8 lakh crore. So the auto sector challenges were coming to the fore, NBFC (crisis) happened at the time the NPAs retrieval was happening with banks, particularly PSBs cleaning up their books. All of them were happening simultaneously. And then came the elections, when for nearly three-four months, things were discussed, but you had to wait for the government to form before spending. So, if you ask me the sectors which were being prominently talked about and as a result of the challenges they face, citizens’ lives, as I say, the aam aadmi’s life has been impacted. Both these sectors (auto and home buyers) have a direct implication on citizens and as a result the spillover is multiplied several times. These two sectors impacted the life of the common man and is definitely causing a lot of anxiety.

If you were to also add the job losses to that, what is the scale of the problem?
I’ve had extensive consultations with all sectors and I’m able to say that many of the NBFC-related issues were already dealt with (announcements made in Budget and afterwards). I’m also ensuring that we are closely working with the RBI to see it through the full course and the solutions that we’ve offered actually benefit the common man. So that’s something which we’ve already given and post the budget announcement, my interaction with the auto sector and NBFCs for the backstop arrangement that we’ve given and also recognising that consumption will have to be boosted, whether it’s public or private. Forthrightly, we can say that the Rs 100 lakh crore announced for infrastructure, will be front-loaded at the earliest. We’ve formed an inter-ministerial task force to identify projects that can quickly be pushed ahead where funds are available. We are making sure that departments clear dues within a specified time frame. Same with GST refunds, which will be cleared in 30 days. To prop up consumption as much as we can, we are moving ahead wherever possible. Sector-wise, we are addressing by giving a majority of what they ask, if not what all they ask. So I expect, surely, clear signs of distress being removed in sectors, which are desperately wanting us (government) to chip in.

When do you expect recovery to start?
I’m sure the sooner you see clear signals of consumption with people buying things, recovery will begin. On our part, the moment the task force identifies projects, I’ll release (funds), so that’s how quickly I will move.

Which sectors are witnessing job losses and which are the sectors that will generate employment?
Technically, there’s no way you can pick any one sector as absorbing all the labour, which is going to come from another sector. But equally, I see that each one of them, particularly, manufacturing, in the light of industrial revolution 4.0 (automation and artificial intelligence), I see there’s a fear that’s not well-founded. It’s a fear without much basis. This is like during the 1990s when computerisation was getting into every walk of life and there was a fear of job losses. But if you take railways or banks, jobs have been retained as much as possible and there were also others that were created. The sum and substance is, in each sector, as much as the nature of jobs are changing because of 4.0, I also see new jobs being created. Industries today are also looking at R&D because they realise they are paying a huge amount of royalty outside.

How can we benefit from the ongoing US-China trade spat?
We are seeing countries like Vietnam and some Southeast Asian nations attracting companies pulling out of China. I’ve seen a lot of interest shown by firms and we are making sure to give them all they need. There are discussions in the pipeline, but I can’t elaborate. Actually, it’s not the number of companies, but several sectors like electronics, renewable energy and semiconductors that are showing interest.

Will slowdown affect tax collections?
It does affect tax collections and that’s where the government will have to do the balancing act. And we are willing to see the balancing starts.

There are only two ways to do it — cut expenditure or borrow. How much elbow room do you have for fiscal expansion?
As finance minster, I’ve to find the elbow room to provide the push and we have done so recently. For instance, auto sector is a touched area. Haven’t we given depreciation of 15 per cent, making it to 30 per cent besides allowing BS IV vehicles purchased until March 2020 to be operational for entire period of registration.

Can we expect the Akhilesh Ranjan panel recommendations on Direct Tax Code in next Budget?
I hope so. Both the panel and the government agree that there should be simplification of direct taxation. And there should be rationalisation of rates. So on that broad one or two principles, we are together, but we have to see about its implementation.

With FPIs pulling out of the Indian market and companies like Reliance deleveraging, is it a reflection of the state of the economy?
I think business decisions are taken on several considerations. The economy, I repeat, may have its challenges, but is still growing at 5 per cent. The challenges are there and I’m not denying them. The challenges are there and we are seized of it. And for the challenges, we are also coming with the responses.

But we are still growing at 5 (per cent) and above. And one quarter low of 5 (per cent), as we all know... for a growing economy, rises and dips are part of growth. Having said that, I’m not sitting idle but keeping my ears close to the ground and responding in a timely fashion. As I said, and I repeat, I’ll come up with more announcements for sectors facing difficulties. Consultations happened with banks, NBFCs, construction, infra, SMEs, financial sector, home buyers and industry leaders. And it’s an ongoing process.